Strangely, this idea (which hit me back in '99, when I came back to Harvard, and which at least one Dean told me was unrealistic) does not seem so wacky today. Harvard has devoted significant new resources to financial aid over the last decade, so college is essentially free for families earning less than $60,000, as outlined here and here.

While some would view this in the mystical light of commitment to the educational mission, social good, etc., I'll be a bit more cynical and actually try to back up why this has been a good idea with an economic argument. More financial aid is just good business. Harvard's cost was limiting its access to the talent pool of graduating seniors; moreover, the resulting debt was at least a potential and probably real barrier to the future success of many graduates. Since Harvard's greatest asset (after its remarkably talented, and modest, faculty, and maybe also its endowment) is its reputation, losing top students because of cost or limiting their success through debt simply cannot be Harvard's optimal strategy. Increasing financial aid just makes good sense, especially given Harvard's resources -- it can take the short-term cost for the long-term good. (The fact that all this coincides with altruism is certainly fortunate, as naturally pretty much all the faculty really do have a mystical commitment to the educational mission, social good, etc.)

This argument, however, doesn't justify making Harvard free for all accepted, as I have proposed. In fact, one might think the other way -- that the rich should be soaked for as much as they can to help pay for the not-rich. My cynical but rational argument for a free Harvard undergraduate education for all is that, if tuition was free, but Harvard then encouraged people to donate what they thought their education was worth -- say, perhaps, a small percentage of their annual income for life -- in the long run, they'd more than make up the tuition loss with increased funding of the endowment (thanks to the power law that is the wealth distribution). This is not a tax, but it is based on the idea that your college education is related to your future earnings, and giving back a percentage of those earnings is an arguably fair way to pay for that education.

Harvard might not even have to wait for the long-term to get the benefit. Indeed, imagine Harvard's next fund-raising campaign beginning with the announcement that after the campaign, as long as their goals were met, Harvard would be free for all undergraduates! What PR! What kind of donations would that bring in immediately!

Longer term, I would suspect the benefit would be even more. The pay-what-you-think-is-fair approach has been tried in some restaurants (see the SAME cafe, or the One World Cafe), and many museums have no fee but "suggested donations" at least part of the time, so this approach is not entirely unprecedented. In Harvard's case, I think the mix of guilt, altruism, and competition would push wealthy alumni (and wealthy parents of students) to give much more. (So you see, I am soaking the rich -- I just think you should wait to soak people until after they are rich, and inspire them to give generously, rather than bill them for a tuition payment.)

There are all sorts of possible side-benefits. It could work out that by moving from a system of tuition to voluntary donations, there would be an immediate jump because the donations, as opposed to tuition, could be made with pre-tax instead of post-tax money. (Note: I am not a tax attorney...) Students not laden with debt may prove more entrepreneurial (which besides helping the economy might lead to bigger donations down the line), or perhaps might take on more public-service oriented employment.

I can see why this might not have been tried elsewhere -- there's a lot of up-front cost while waiting for future payoff. Even for Harvard, perhaps the risk of too many free-riders is too large, although I doubt it. Harvard could also label the plan an experiment, suggesting that after some time tuition would have to be re-instituted if donations didn't keep pace with projections, to limit the risk. Perhaps the biggest negative is if Harvard tried this unilaterally, it would be seen as an unfriendly neighbor to all the other colleges. Still, I can't help but wish this idea would be given a try. Perhaps it could change the way we talk about funding education in this country, moving increased resources to our education system. I'd like to see Harvard lead the way in this regard.

30 comments:

Anonymous
said...

This is certainly an interesting idea. Of course there is no reason to stop with undergraduates...

One negative is that it would (further?) increase the disparity between students going to Harvard and students going elsewhere. Anecdotally, at least, the average student with a degree from Harvard makes more money than the average student with a degree from, say, U Penn (even controlling for intelligence and major), and now the former would graduate with no debt, either!

If you're going to be completely rational, why not just admit only the richest students (still tuition free)?

How do you plan to deal with, or fend off, the "legacy effect" that will be propelled by such a payment system? We know that Harvard (like many other private universities) loves to help out those alumni who donate money by offering admission for their kids.

I suspect the Harvard administration would be afraid of the long-term financial risks. If the endowment investments did exceptionally poorly, or if the government changed the tax structure to penalize charities that hoard money, then this could suddenly become infeasible.

Another issue is whether it would actually attract less well-suited students. If there were a big financial incentive to attend Harvard, then many students would feel pressure to attend if admitted, even if they disliked Harvard or it wasn't well suited for their interests. This could perversely end up hurting Harvard. I suspect the net effect would still be positive, but not as much so as one might expect.

Another difficulty is that this would be very hard to undo, if it were necessary to return to charging tuition. Charging tuition to currently enrolled students would make them furious (even if they knew it was a theoretical possibility when they entered, they would hate the idea of being forced to pay or transfer). Charging tuition only to new entering students would make them feel like second-class citizens and would hurt Harvard's recruiting ability even more severely.

The net effect is that Harvard will never try this unless it is guaranteed to work well in the long term, and I doubt that will ever be clear. I like the idea, though.

Why just undergraduates, or are you operating under the (true in my experience) assumption that postgraduates don't pay for tuition anyway?

A potential problem is that people tend to value things in proportion to their cost. Now I know most students don't pay -- their parents do -- but I imagine there is at least some pressure to do well when attending an expensive University like Harvard, and I imagine that pressure contributes in part to people working harder. In contrast, I'm amazed when I talk to my (continental) European friends how long it takes them to graduate, and I believe this is in part due to the effectively free education they receive. I'm fairly sure this could be got around -- just give people n free years, where n is the length of a typical degree.

Overall I'm in favour of the plan, but I think it would have to be well designed to succeed.

Anon 1: Why would it be rational to admit just the richest students? That might offer a short-term gain to the endowment, but I don't see how it could be in Harvard's long-term best interest. It seems like a completely irrational strategy to me. (And, coincidentally, nobody seems to do it in education, except perhaps in fancy New York pre-schools.)

Anon 2: Why would you think this plan would make the legacy effect stronger than it is currently? In my mind, it might reduce it, since my hope would be it would increase donations globally (lessening the importance of legacies), and since the money Harvard receives from someone would be more tied to gains in future earnings than to present value. But if you'd like to explain more fully, it sounds like an interesting concern.

Anon 3: You bring up several worthwhile criticisms of the proposal! I would have to agree, such a change would bring risks that are hard to measure, as they would be new risks not in the current landscape. The question is, would the risks be worth it? Maybe Harvard is too conservative a place to take on these risks.

Noel: I talk about undergraduates because you have to start somewhere. Harvard College is still considered the center of Harvard University, so it's the right place to start. I also think basing a fund-raising campaign on free undergraduate education could be quite compelling; I think it would be less so for graduate education (in part because, as you point out, in the sciences at least, most grad students already have funding).

It's easy to just say "Harvard's rich, it can pay for it." Where's the money going to come from now, in the immediate term? Whose ox is being gored? Best case scenario, you still have about a 20 year gap between today and the first major donations from grads under the new regime.

As someone pointed out, there's probably some interest in having students and their families make major financial commitments to their educations. This way, for better or worse, they're less likely to go into elementary school teaching rather than banking.

Why not just focus on incremental change? It's difficult getting administrators to support a plan promising high initial costs and the prospect of a large payout only after they'll be gone. Pegging tuition increases to inflation might be an achievable first step.

I think this is a good idea and also practical. Tuition is anyway is a small part of Harvard's budget and people will feel compelled to contribute more if they have been given an education for free.

The one thing I don't like is the dismissal of the "mystical light of commitment to the educational mission, social good, etc..". What is the goal of Harvard if not thse mystical things? Just to perpetuate the endowment or the name?

I do think that on purely cynical basis, one would make the parents' wealth a huge factor in admission. There is far more correlation between the wealth of the student's parents and the student's future wealth (and so ability to donate to Harvard) than between the student's talents and future wealth.

However, doing so is a PR disaster, and so the best thing is to have most of the student admitted on merit, to preserve the Harvard name, and then some of the students admitted based on wealth, to preserve and expand the Harvard endowment. Wait, maybe that's what's already being done?...

I thought one of your arguments for rationality was potential future wealth of graduating students. Sure, a non-rich incoming student can become wealthy after graduating Harvard, but wouldn't an already-rich student be more likely to end up with greater wealth on average?

Anonymous 6: I think I was clear in my post that I think the best way to start the process would be tied with a current funding campaign. I agree Harvard can't risk waiting 10-20 years to see what happens; by tieing it to a current campaign, though, they should be able to get enough money to start.

Anonymous 7: If I had to express it, I would say that Harvard's mission is to train the leaders of tomorrow, where leader should be interpreted very broadly. So perhaps I'm not so cynical and more mystical than I might let on. But I believe this mission is best accomplished by such practical things as perpetuating the Harvard name and the endowment.

While there is a correlation between parents' wealth and students' future wealth, I think there's less of a correlation in terms of the "leaders of tomorrow" criterion. In particular, the labor leaders, the Nobel-prize winning poets and writers, the scientists, and the leaders in areas yet-to-be-invented need to be trained, as well as the investment bankers, lawyers, and politicians of tomorrow. This is why I'm adamant that just letting in children from the richest families would be a very poor idea for Harvard indeed. That's not to say that giving them a small preference -- particularly if they pay to support students who otherwise couldn't -- is necessarily a bad thing. So I think we agree...

This reminds me of my undergrad student politics days (at a public university) where we would talk about a tuition-free system in which alumni/alumnae would pay for their education via a tax on their future earnings. Some things to think about:

* In several countries, universities are free, or nearly so, yet there are still big family income gaps between the those who choose to attend universities and those who don't. Tuition is just one part of the equation. There is the opportunity cost of not earning money while one is attending college (let alone the cost of room and board at university rates). This is the real barrier to many students, much bigger than the tuition cost.

* Because of the above, at public universities, low tuition yields a net transfer from lower income to higher income families.

* One consequence of very low or non-existent tuition is that students may place less value on their education. I have heard that this is an issue in some countries with low/zero tuition. I wonder how many students work hard just because of the guilt that their parents are forking over all that money for their education?

Overall, I actually could see this working well at highly selective universities, like Harvard. I am just not sure how broadly applicable this could be.

I think several of the arguments against this idea have already been stated well, so I will just emphasize one. To carry this argument forward, given the high costs and high stakes, you'd sure want to discuss with some economists and psychologists whether the behavior you hope for from families is what you should actually expect.

I very much expect that one of the principal effects of such a program would be on upper middle class families, who now receive little or no financial aid. These families are not wealthy enough to be able to avoid making choices about their discretionary spending. Right now they decide to invest in their children's education rather than to take the family to Europe every summer or buy a ski lodge as well as a beach house. It is very hard for me to see the argument that says that Harvard should subsidize such luxury spending by these families, on the theory that doing so will pay off to Harvard in bigger donations from them or their children in the long run. As long as Harvard continues to fund raise, it would have a hard time explaining to me why I should give money so that some well-off family can spend its money on such things rather than on their children's education. I also doubt it can be rationalized as enlightened social policy, even if, as I very much doubt, the economics can be made to work on the 50-year time scale.

(Full disclosure: I speak as one who has had the privilege of paying three Harvard tuitions, two College and one HBS. And I do mean privilege. And Michael knows what kind of car I drive!)

I think the idea is not free education but rather, as Michael said, "pay how much you think is fair" education.

Already on average, Harvard alumni give to the university more than the tuition, so perhaps they would give even more if they didn't have the wrong impression that they already paid for their education.

I say that it's the wrong impression because in Harvard, as in most universities, the tuition does not cover the expenses of education. In fact, one possibility would be that at graduation each student will receive a "bill" with roughly the amount his/her education cost.

The hope is that people will be generous and return this investment based on their earning. Since Harvard alumni have been on the whole very generous (after all that's how Harvard's endowment was built), it seems to be a reasonable hope.

BTW I think I read somewhere that if Harvard spent 5% each year of its endowment (as many non-profits do) rather than only 4% then it would be able to avoid charging tuition.

Michael, Do you think this idea will make much more difference than say simply raising the bar for making Harvard free from $60K to $100K (and maybe raising the bar for partial support accordingly)?

I agree the economics might work, but it's probably not going to be a huge difference, so economic consideration should not be the reason.

Is there an inherent reason that families that have enough cash shouldn't participate in funding their children's education?

I could see better arguments for videotaping all lectures and making them available on the web? (at least this would give knowledge to people that would never have a chance of getting to Harvard, including people in other countries).

In response to 4:25PM, you are correct that Harvard alumni are (on average) wonderfully generous. Nothing makes them more generous than knowing they are making it possible for some young person to have the opportunity for a Harvard education who otherwise would not have that opportunity. In my view, the speculative part of the free-tuition proposal is that they would be equally generous knowing that they are enabling families not to have to choose between fancy summer homes and sending their children to Harvard.

As for the "pay how much you think is fair" concept, isn't that what the old shareware economy was based on? How did that work out for producing quality software?

4:37PM has it right --- Harvard should keep moving the line up. There is plenty of room to keep doing that for a long time without raising any qualms. But if you do that indefinitely, at some point Harvard would be subsidizing luxury purchases by families who would otherwise be unable to afford them. We need a social psychologist/economist to tell us how the math would work out over 50 years on that in terms of long-range giving, but there is something moral that doesn't feel right about it, regardless of the economics.

Ah... I knew I could get Harry Lewis involved in my blog by posting on this! (Because this is a topic on which I know he and I disagree...)

In my view, the speculative part of the free-tuition proposal is that they would be equally generous knowing that they are enabling families not to have to choose between fancy summer homes and sending their children to Harvard.

And my claim is that actually these generous families would put pressure on these other families to donate more than that summer home -- perhaps not immediately, but down the line, in future earnings.

Let's take a hypothetical person, call him Michael, who came from a reasonably well-off middle class family, but by no means well-off enough to afford a fancy summer home. His parents paid full tuition to Harvard. He goes on to be reasonably successful in his line of work. Maybe he doesn't feel he owes anything to Harvard at this point. (Heck, from the way you put it, it sounds like Harvard cheated his family out of a summer home!)

Seriously, Harry, I think you underestimate the pain for middle-class families of the Harvard price-tag, and overestimate their discretionary spending. And perhaps you underestimate what I think would be self-reinforcing generosity, though I'll give you I could use some sound advice from economists and psychologists on that point!

As for the "pay how much you think is fair" concept, isn't that what the old shareware economy was based on? How did that work out for producing quality software?

Now, c'mon, that worked pretty well. In fact, it's been replaced by freeware -- people devoting their time to projects like Linux, Wikipedia, etc. It's amazing what a community can do when you bring them together!

Harvard should keep moving the line up...

Well, I'll agree with you there! If they won't make Harvard free, increasing financial aid is certainly something I can get behind...

Thanks, Harry -- I do appreciate your reasoned point of view (and experience) in commenting on this subject... even if I continue to disagree.

"I think you underestimate the pain for middle-class families of the Harvard price-tag, and overestimate their discretionary spending."

No I don't (remember what kind of car I drive). You're just using a different defn of middle class (my original comment said "upper middle class"). By a continuity argument, given that there are families who can afford anything and families who can afford nothing, there are families who could afford Harvard just fine, but not both Harvard and the fancy summer home. And I can't escape from the feeling that it is more than a question of expected ROI whether Harvard should subsidize their luxuries. It's a question about what impact such a move would have on our culture of self-reliance and personal responsibility --- what's left of it, that is!

It's a question about what impact such a move would have on our culture of self-reliance and personal responsibility --- what's left of it, that is!

So, let me ask, it is your opinion then that Harvard's currently approach is flawed -- that even those with lower middle-class or lower incomes should be paying something (or working part-time while at Harvard, or taking out loans), so that they have their "share" of self-reliance and personal responsibility? It seems to be an implication of your statement to me, but you may want to elaborate.

Anon 1: Hopefully I've made clear, the point in my mind is not for Harvard to collect wealth for wealth's sake. (See my comments on leadership and reputation.) Also, even if that was the goal, which it's not, I'm skeptical whether admitting the wealthiest students would lead to the highest donations; less wealthy people who make it later on in life might feel more connected to Harvard and give more.

It's a fair question whether everyone should pay something. Ideally I tend to think so, but the stakes are not very high here, and it's not just a moral question; it's partly a competitive question too. Even if Harvard's overall financial aid offerings were the best, we wouldn't want to lose top low-income students to another college because Harvard expected them to pay $500 per year and the other college had set aside $5000 to waive those fees for a few very low income students who also got into Harvard. So I wouldn't want to say our policy is wrong either; the answer depends on more information than I have.

A more proximal question is whether current financial aid policies at places like Harvard discourage middle-class savings, since family assets as well as family income figure into the calculation of what a family can be expected to pay. Why save money for college if the college will take it away from you anyway? To the extent our policies encourage that kind of thinking, I do think they contribute to a social problem, not that I know how to fix it. So I would put the question back to you in a different form: Do you think families should save for college? Perhaps the right advice to your friends is to tell them to hope that their children will get into a college that will provide for them financially even if the parents haven't. (And people like me, who have, are chumps.)

To get this onto a lighter plane, I remember many years ago walking into the office of our financial aid director (not the current one) after he had gotten off the phone with a mother who was protesting the small size of the financial aid award her son had received. She had little cash in the bank and little income; why wouldn't Harvard give the family more money? After the director had answered her question, she shouted indignantly into the telephone, "You mean you expect me to SELL ONE OF MY RACEHORCES???!!"

But I think Harvard's policy *is* to collect wealth for wealth's sake. Isn't that what the endowment is all about? I'll believe Harvard's innovating in undergraduate education when I see it. -Skeptical alumnus

The Public Service Academy is a great idea. I urge everyone to support it.http://www.uspublicserviceacademy.org/But that idea has nothing to do with this thread. It is improper for a charitable institution to turn its money over to another one that has a different chartered purpose.

I don't think this would work because of game-theoretic considerations.

I think that any donation-boost you will see would come from Harvard relatively-unique position of offering free undergrads, not from increase in 'longterm student willingness to donate'. If we accept this for a second, you will see that, if your proposal indeed increases donations and is accepted industry-wide, as other Ivies adopt this same model, Harvard would no longer benefit from such increased contributions. The result would be an another Nash equilibrium, with equivalent donations to current-day donations, and no tuition.

The best argument: because a much smaller college is already doing it and has been for more than 150 years.

With less than 3% of Harvard's endowment, Berea College (www.berea.edu) provides a high-quality, tuition-free college education for 1,500 students per year until they graduate. Students are taught by professors, not teaching assistants or graduate students; class sizes are small, with an average student teacher ratio of 10:1.

Compared to Berea College, Harvard is just greedy, unimaginative, and poor stewards of a bloated endowment.

Somehow, the argument that "someone else is doing it so Harvard should" isn't very compelling to me. Indeed, if they have been doing it for so long, so successfully, why don't they have the name recognition/big endowment/etc. that Harvard has? I'd find more compelling an argument that Harvard should do it out of its own best interest. (Indeed, that's the type of argument I tried to give.)